A couple of weeks ago, Lakeland Industries (NASDAQ:LAKE) and Alpha Pro Tech (NYSEMKT:APT) were two companies that I had never heard of.
But with the arrival of the Ebola virus on U.S. soil, these companies began to quickly gain incredible traction in the markets.
Lakeland Industries (NASDAQ:LAKE) is a Ronkonkoma, New York-based company that specializes in protective gear for people who have to handle hazardous material, including disposable protective clothing, chemical protective suits and fire fighting gear. Lakeland supplies federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control.
Lakeland’s stock has skyrocketed from a low of $5.85 per share on September 11, to a high of $29.55 per share on October 14. That’s a spike of 405% in just over a month.
Similarly, Alpha Pro Tech (NYSEMKT:APT) is another company that has benefitted immensely from the arrival of the Ebola virus on our shores.
Alpha Pro Tech investors have been attracted to its Disposable Protective Apparel segment, which consists of disposable protective apparel, such as shoe covers, bouffant caps, gowns, coveralls, lab coats, frocks and other miscellaneous products and its Infection Control segment, which consists of face masks and eye shields.
And of course, Alpha Pro Tech’s stock has exploded from a low of $2.48 per share on September 8 to a high of $10.73 per share on October 14 for an incredible gain of 332%.
Admittedly, I never saw this coming.
Based on speculation alone, these companies together are now worth a mind-boggling $300 million – up from about $77 million just a few weeks ago.
No doubt, some investors that got in early are sitting on some impressive gains because of this viral outbreak in Africa.
But with the initial surge now slowing, is there still an opportunity to make money off of the Ebola scare?
The answer is yes… but not in the way that you think.
Actually, the way to make money is quite simple.
Sell Lakeland Industries and Alpha Pro Tech short.
After looking at their financials, there is no scenario imaginable that can justify Lakeland Industries trading at a market cap of $127 million.
The company operated at a loss over the last 3 fiscal years. And even if revenues were to triple this year to $270 million and margins hit their highest in 4 years at 1%, the company would only make about $2.63 million or $0.46 a share. And that’s being generous.
As for Alpha Pro Tech, its market cap of $169 million isn’t justified either.
In the last four fiscal years, Alpha Pro Tech earned a total of $5.29 million or $0.26 per share. Again, even if revenues tripled, the company would only earn about $6.24 million or just $0.34 a share.
Simply put, these companies are trading at levels that can’t be sustained. Sooner or later, they’ll come crashing down as investors realize that their valuations are completely overblown and their fears over the spread of Ebola are unfounded.
Here on Top Stock Millionaire, I don’t often delve into the short selling side of the market.
But when assets are as grossly mispriced as this because of fear, it would be stupid not to. Go Short.
- With Earnings Seasons Right Around The Corner, Is Now A Good Time To Buy Microsoft (MSFT)?
- This stock’s growing 171% faster than the US
- Why You’re $1,200 Richer And Two Top Tech Stocks That Stand To Benefit
- The Top 5 Worst Energy Stocks of 2014
- Why Neither Apple Nor Facebook Are Among The Smartest Companies In The World: Part 2